New Delhi, Nov. 25: The Congress fielded Kapil Sibal in the Rajya Sabha on the debate on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Bill, but the leading lawyer had opposed the procedure of recovery from loan defaulters, both in the Supreme Court and in Parliament.

However, the Congress party’s “policy” is to support the Bill.

Sibal said there was “no conflict of interest” as what had come up in the apex court “is only the constitutionality of certain provisions”.

The Bill allows banks and financial institutions to “attach, sell and create third party interest” in the case of a company that does not repay its loans.

Finance minister Jaswant Singh, piloting the Bill in the Rajya Sabha, said the code had been framed in consultation with the Reserve Bank by an official working group, which had studied lending practices followed in other countries, including the United States.

Industry has estimated bank loans of Rs 150,000 crore, which banks and other financial institutions keep under the head “non-performing assets” (NPA). It means these loans are irrecoverable.

Jaswant Singh had called this “NPA” a euphemism for writing off the loans. The government had promulgated an Ordinance as a Bill could not be moved in Parliament last time. It empowers even a bank manager to attach the property of a borrower, allow the lender to manage the unit or sell it to a third party.

This has been challenged by several defaulting companies in different high courts. To avoid conflicting verdicts, all the petitions have been clubbed together by the Supreme Court.

Sibal represents some of the defaulters in the court. He argued in the Supreme Court that defaulters would suffer “irreparable loss”, even if they paid back their loans at a later stage, as the company would have been sold or its management taken over with the creation of third party interest.

Sibal said his arguments in the court did not amount to any conflict with the stand taken by his party. “For example, there is a civil procedure code amendment Act. We (in Parliament) passed it. But on its constitutional validity, the apex court directed several changes and appointed a committee. I, along with Arun Jaitley (also a leading lawyer and BJP leader), am in that committee.”

His contention is that the Supreme Court alone could go into the constitutional validity of any enactment by the legislature.

In the Rajya Sabha, too, Sibal said there were several “flaws” in the law and the government should ensure adequate safeguards so that clauses on transferring attached assets to third parties were not abused.

He said clauses like giving the right of appeal to defaulters only if they cleared 75 per cent of the dues were unfair. Under the proposed law, a defaulter has to pay 75 per cent of the money he owes to a bank or financial institution to go on appeal against attachment of property or takeover of management.

Jaitley, who had brought this law as Union law minister, appears for ICICI Bank in the Supreme Court. He said the “mindboggling” sums of arrears of industrialists could not have been recovered at all, but for the ordinance.